How to gain certainty, confidence and control in cash flow management

Cash flow management is essential for any business seeking long-term success. Mastering cash flow can immensely benefit your business, including improving financial management, enhancing decision-making, and providing better access to funding. It also helps identify and mitigate risks, making your business more sustainable and continually growing.

In our recent webinar with Weel, Nick Cooper, CFO at ezyCollect and Heather Smith, friend of Weel, discussed how finance teams could gain certainty, confidence and control in managing cash flow.

Here are key takeaways from the session.

How can you manage cash flow with certainty, confidence and control?

Certainty

Certainty refers to clearly understanding the current cash flow and knowing what to expect in the future.

To achieve certainty, you need to:

1. Understand who you are doing business with
2. Monitor your existing portfolio of customers and changes in their payment behaviour
3. Prepare for unexpected payments and expenses.
   

Using online credit applications and monitoring credit scores can help gain certainty about customers’ payment reliability, while tools and accounts receivable software can monitor customer payment behaviours to manage risk. Finally, virtual prepaid debit cards can help businesses deal with unexpected expenses.

 Confidence

Confidence in cash flow is essential to make informed decisions and take calculated risks to push the business further while ensuring sustainability. Confidence comes from having reliable data that will allow you to strategise and forecast budgets.

Here’s how to build confidence in your cash flow:

Scenario planning: Identifying potential risks and opportunities

Scenario planning in cash flow budgeting involves identifying potential risks and opportunities impacting your business’s cash flow. It means creating a range of possible outcomes for your business based on different scenarios.

Probability estimations: Assess, estimate and test assumptions within the business

Probability estimations refer to the process of assigning probabilities to different cash flow scenarios that you’ve identified may occur in the future. This involves assessing the likelihood of various events and their potential impact on cash flows, such as changes in market conditions, unexpected expenses, or customer demand.

One approach to estimating probabilities in cash flow budgeting is to use historical data to identify patterns and trends and then extrapolate these trends into the future.

Another approach is to use expert judgment or other sources of information to estimate the likelihood of various events occurring. This may involve gathering input from key stakeholders, industry experts, or other sources to develop a range of possible outcomes.

Decision-making: Anticipate potential changes and adapt accordingly to better control and manage cash flow

Decision-making in cash flow budgeting involves using financial data to make informed choices about allocating resources to achieve desired outcomes. The process consists of creating a cash flow budget, a financial plan that projects future cash inflows and outflows.

The cash flow budget typically includes estimates of all the cash inflows and outflows expected for a given period, usually a month, quarter, or year. These cash flows may consist of revenue from sales, customer payments, salaries and wages, rent or mortgage payments, loan payments, and capital expenditures.

Once the cash flow budget has been created, decision-makers can use it to make informed choices about allocating resources. For example, they may increase revenue by investing in marketing campaigns, reduce expenses by renegotiating contracts with suppliers, or prioritise specific projects based on their expected return on investment.

In making these decisions, it is essential to consider the immediate impact on cash flow and the long-term implications.

How to measure and optimise your cashflow performance

Tools to gain cashflow confidence

While budgeting and planning might seem overwhelming, the good news is that tools are available to help you. Your accounting systems, such as Xero, QuickBooks, or MYOB, have functionality that can help you do that. Or you can pull out the data from your accounting solution and export it to Excel or Google Sheets for a low-tech option. You can also integrate with software like Fathom or Calxa to make more sophisticated forecasting models using actual data.

Control

To control cash flow, you need certainty and monitoring. This involves optimising inflows by ensuring you predict when you’ll receive cash and managing outflows by setting automated rules on expenses and tracking them in real time.

As you can now appreciate, control of your cash flow has much to do with automating your accounting systems. Automation creates efficiency in your processes and gives you the authority and visibility to control how cash flows in and out of your business.

Facilitating frictionless payments helps you get better control of your inflows. An accounts receivable software can help you do that by allowing you to:

• Offer discounts on early payments or when customers opt for a direct debit payment option
• Automate invoicing and payment reminders – and add pay now links and buttons for easy access to online payment facilities
• Provide multiple payment methods to accommodate your customer’s preferences.
• Gain direct debit authorities to automate payment collection and eliminate chasing.
• Establish processes and reporting for continual monitoring.

B2B payments in ezyCollect: Pay Now in SMS, Collect Now in Bulk, and more

Utilising virtual corporate cards and expense management software can help control outflows or spending. Spending management lets you formalise business processes around your expense policy, ensuring spending rules are implemented automatically and expenses are tracked and reported properly.

Master your cash flow with AR automation

Mastering cash flow management is a challenging task and requires continuous effort. Fortunately, tools and new technologies can help you proactively manage how cash flows in and out of your business.

Understanding the 3Cs of cash flow – Certainty, Confidence, and Control – can help businesses improve their financial and risk management, make informed decisions, and ensure sustainability.

Interested to see how accounts receivable automation works to give you more control over your cash flow? Speak with one of our AR experts today today to learn about options for your business.